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The probability of informed trading in the Brazilian stock market

Orleans Silva Martins, Edilson Paulo

Abstract


This paper aims to investigate the existence of insider trading in the Brazilian stock market. For this, we estimate the probability of informed trading (PIN) of 229 stocks during the years 2010 and 2011, using the model of Easley et al. (2002). In the results, it was found that the average PIN of these stocks was 24.9%, suggesting the existence of informed trading in that period. Considering the segment of corporate governance, the stocks listed on Level 2 had the lowest average PIN (24.4%), while stocks on Level 1 had the highest average (25.6%). Considering the classes of stock, the average PIN of common stocks was 24.2% and the average PIN of preferred stocks was 26.0%, indicating that the stocks with voting rights had lower information asymmetry. Still, it was found that the relationship between greater and lesser liquidity PIN was only confirmed for common stocks with high liquidity.

Keywords


information asymmetry; private information; probability of informed trading



DOI: http://dx.doi.org/10.12660/rbfin.v11n2.2013.6233


RBFin - Revista Brasileira de Finanças, secretaria@sbfin.org.br
Uma publicação da Sociedade Brasileira de Finanças